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Hillshire Brands Co (HSH)

Barclays 2013 Back-to-School Consumer Conference

September 3, 2013 11:14 AM ET

Executives

Sean Connolly - CEO

Maria Henry - CFO and EVP

Analysts

Presentation

Okay, good morning everybody. We'll kick off our next presentation here. At the initial investor day, a little more than a year ago, Hillshire Brands outlined its vision to be a neat centric packaged foods company focused on growth to the refreshment of its iconic brands and expansion into adjacencies and new mill locations. This strategy started to take hold during fiscal '13, aided by a pronounced and unexpected benefit from the cost inflation that funded reinvestment while still leaving Hillshire to exceed its initial EPS goals. Heading into fiscal '14 however, the Company will have to navigate somewhat more difficult operating conditions related to potential inflation and a heightened competitive environment. Here to discuss Hillshire's expectations for the coming year and progress that's made towards its FY15 goals, are President and CEO, Sean Connolly; and EVP and CFO, Maria Henry. With that, I'll turn it over to you Sean. Thanks for being here.

Sean Connolly

Thank you, Andrew. Good morning, everybody. It's good to see everybody, whether here in the room or those of you turning in by webcast, appreciate your interest in Hillshire Brands. We've been at this for a while now but I recognize that a bunch of the people tuning in today whether here in the room or by webcast or new to our story. So as you'll see, I've included some fundamental background on our Company, so if you are not familiar with us, you'll understand some of our key assets and some of our strategies and how we intend to create value.

Before I jump into it, please take a second and look at this slide on forward-looking statements. All right, let`s get into it. Here is what I want you to take away from our presentation today. First and foremost, we have a fantastic portfolio of market leading brands. Second, we have great categories and we expect to drive growth in those categories through disciplined investment and brand building and innovation that is central to our thesis. But we have an equally rigorous focus on cost management because we recognize we need to pay for our demand drivers and therefore we have strong cost programs and we're focused on delivering those over the next several years.

We will also pursuit targeted M&A as a way to accelerate the growth within our categories and finally, we have a strong belief that we can continue to drive shareholder returns through this great portfolio we've got. And when I talk about the great portfolio, I am talking about a $4 billion company here in North America that is a focused food company. And as you can see from the chart on the left, about three quarters of our revenue base is in the traditional retail segment of trade with about a quarter of our revenue base being in the food service channel.

Importantly, roughly 90% of our portfolio is branded and these are not just ordinary brands, but these are extraordinary brands. When I talk about our branded portfolio, I am talking about a slew of great brands, the top two being Jimmy Dean and Hillshire Farm which are roughly $1 billion in sales and several other terrific brands in our portfolio, but instead of me telling you about our brands, let me play a short video for you that will give you a sense of the heritage of the brands within Hillshire family.

So it’s a strong portfolio of brands and importantly, we have leading share positions in many of our categories and very strong relative market shares. As you can see here, Jimmy Dean, number one in breakfast sausage but also number one in frozen protein breakfast. Hillshire Farm, number one in smoke sausage and number three in lunch meat, Ball Park is the leading hotdog brand in America, State Fair is the leading corn dog brand, Aidells is the leading superpremium sausage and Gallo which is our terrific west coast brand is number three overall in the nation but it's extremely strong in the west coast where it's been around for a number of years, so very strong positions in our core categories.

Now we've got a number of ways that we can grow this portfolio within the category, so let me break this slide down for you. Left or right, you’ve got our categories on the screen here, lunch meat, hotdogs, smoke sausage, breakfast sausage and frozen protein breakfast and the brands which compete within those categories. At the bottom of the page, you can see the size of these categories. These are large categories starting with lunch meat and a leftover 5 billion all the way over to frozen protein breakfast on the right at a 1.5 billion.

And then down at the very bottom you see the growth rates. These are fundamentally growing categories with the exception of hot dogs which I've mentioned before, has been a bit of a sluggish category and need of some innovation.

What you see with the bars is category household penetration. The green bars represent household penetration for the total category; the orange bars represent household penetration for our brand. So whether its fully mature categories like lunch meat or hot dogs where you see the total category is roughly at 80% household penetration or its young categories like frozen protein breakfast where the category only has a household of 38%, but its growing rapidly. We've got a meaningful opportunity for growth. In the fully developed categories, it's going to be by growing our market share, in the developing categories, it's going to be by us being a leader in that category and innovating to continue to drive category growth. No matter where you look, there is room for growth within these categories.

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